Senate takes up bank deposit insurance bill

WASHINGTON -- The Senate on Tuesday began considering
proposed legislation to extend for two years a Great Recession program
that provides open-ended government insurance backing for certain
non-interest-bearing bank accounts.

The 76-20 Senate vote to
consider the bill to extend the Transaction Account Guarantee program
was a victory for community banks who say ending the deposit insurance
program could lead to a flight of money from smaller, more vulnerable,
banks to the too-big-to-fail megabanks.

Conservative groups, and
credit unions seeking greater equality with banks, oppose the
legislation. They say the program, put in place in October 2008 to stop a
possible run on banks, has outlived its usefulness. Their position may
prevail in the end: even if the bill makes it through the Senate it
faces opposition in the Republican-controlled House.

The program,
revised and renewed in the 2010 Dodd-Frank financial overhaul act,
changes the $250,000 limit for federally backed insurance that applies
to other deposit accounts, making that insurance coverage unlimited for
the non-interest-bearing bank accounts. If the program is allowed to
expire at the end of this year, transaction account deposits will revert
to that $250,000 limit.

The no-interest accounts are used by
businesses, local governments, hospitals and farmers who need a safe
place to keep money they use to meet payrolls and other short-term
recurring expenses. Critics say that, with interest rates on other bank
accounts so low, they also provide the rich with a risk-free place to
store money that might otherwise be used for investments.

Senate
Banking Committee Chairman Tim Johnson, D-S.D., said 90 percent of
community banks with assets under $10 billion have Transaction Account
Guarantee deposits and "this program allows these institutions to serve
the banking needs of the small businesses in their communities, keeping
deposits local."

But the conservative Heritage Action for America,
in urging senators to defeat the bill, said the way to level the
competition between big and small banks "is not to subsidize smaller
banks, but rather to address the problem of too-big-to-fail, which was
exacerbated, not fixed, by the Dodd-Frank bill."

The White House,
in a statement, said it supported the temporary extension but was
committed "to actively evaluating the use of this emergency measure
created during extraordinary times and a responsible approach to winding
down the program."

As of the end of September, $1.5 trillion was
guaranteed in transaction accounts at U.S. banks and thrifts, according
to Federal Deposit Insurance Corp. data.

Camden R. Fine, president
and CEO of the Independent Community Bankers of America, issued a
statement saying failure to extend the program would result in much of
that $1.5 trillion abruptly becoming uninsured. "This will be a
destabilizing blow to Main Street financial institutions and the
communities they serve."

But opponents, including the top
Republican on the Senate Banking Committee, Richard Shelby of Alabama,
say it is no longer necessary to expose taxpayers to potentially massive
losses.

The program has cost the FDIC almost $2.5 billion,
although supporters argue that those losses are covered by insurance
premiums banks pay the FDIC. "No taxpayer is on the hook for this
insurance," Johnson said.

Megan Whittemore, spokeswoman for House
Majority Leader Eric Cantor, R-Va., said the program was intended to be a
temporary measure during the height of the financial crisis and that
"the majority leader believes we should not continue to extend these
guarantees and therefore opposes the proposal."

The measure is
also opposed by the Credit Union National Association, which ran ads
saying "the banks have their hands out again." The credit union has said
an extension of the program should be accompanied by legislation that
would allow credit unions to expand lending to their business members.

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